A Top 10 Trends for Wealth Management

In
“Top 10 Trends in Wealth Management, 2013,” the research group examines the
impact of economic forces on servicing and operating models, which are still
adjusting to a post-crisis environment. The main goal for many firms, according
to the report, is to finally kick their wealth management business into gear
and once again accelerate growth.

“Five
years after the start of the financial crisis, the wealth management industry
is still dealing with the aftermath of the crisis and trying to switch its
businesses into growth mode,” says Alois Pirker, research director with Aite Group and
co-author of the report. “Uncertainty will persist in 2013 as the wealth
management industry waits to see whether investors will finally return to
investing and taking on risk.”

Pirker
predicts that firms will re-evaluate strategies for operating and growth,
weighing the pros and cons of acquiring versus partnering. Even in a strained
economic environment, advisory practices will find opportunities for growth.

“Large
firms will look to acquire, and the small will look for partnerships depending
on their financial ability,” Sophie Schmitt, a senior analyst at Aite Group,
told PLANADVISER.

Firms
will look to their own technology platforms to see how they can be used to turn
around and service smaller providers. Firms with that ability can offer brokerage
services to other firms, Schmitt said. Those firms will want to build their
existing IT staff and technology.

Small
to midsize firms might make targeted acquisitions after examining what they
want to keep doing in-house. Perhaps wealth management isn’t their bread and
butter, but they would still like to be able to offer the service. Regions Bank’s
decision to partner with PrimeVest to build its brokerage operations is a
recent example. (See “Regions Back in
Investment Business.”)

“When
it’s not a core competence, they have to be smarter about how they go into the business,”
Schmitt said. It is not only a matter of where capital is allocated, but firms
thinking about how to deploy capital against lines of business.

(Cont’d…)

More Regulation,
More Documentation

It
is likely the regulatory burden for financial advisers will increase, Pirker
noted in the report. In the U.K., advisers are no longer able to accept
commissions for bonds and other financial products they sell.

That
would be a radical change from the economics here, and while it’s unlikely we
will see that, according to Schmitt, advisers should expect to see documentation
increase, from higher adoption of financial planning tools to more sensitivity
around costs.

Advisers
will have to figure out how to take their clients through the planning process
to make sure they are delivering the advice. “There could be a requirement to
show that you’re actually investigating your client’s finances in more detail,
and not just taking them at face value,” Schmitt said.

This
process would require more data gathering and creating a trail prior to making
investment recommendations. Many firms are already on that path, according to
Schmitt, and these firms have been touting the benefits of a fee-based rather
than a commission model.

Another factor garnering more
attention is cost. The organization fi360, a provider of analytics and
education, has been advocating for “least cost” in investment products, which
may mean the need for new tools to ensure that advisers actually minimize
product cost. “I could see some investment in disclosure and workflow tools to
make sure advisers go from Step A to Step B,” Schmitt said. “The industry has
been moving toward that, and it would be welcome.”

Most
advisers, both registered representatives and RIAS, favor the fiduciary
standard, Schmitt said, because it better aligns the interests of clients and
advisers better.

(Cont’d…)

Reaching for Greater
Efficiency

Registered
investment advisers (RIAs) will reach for greater efficiency, striving to do
more with less and streamline their operations. Better time management and more
efficient processes will become key.

Much
of this will be related to use of technology. Integrated platforms that
custodians have built to work more efficiently will be one strategy, Schmitt
said. “Moving to a fee-based model is also going to require advisers to
optimize their time, because they’re trying to get clients to come up with more
money on an ongoing basis, rather than just one time after selling a product,”
she said.

Technology
will be more than just deploying tablets “simply because they’re cool but
really trying to leverage technology and the intuitive interfaces firms are
building to provide more value to clients,” Schmitt said.

Technology
Strengthens the Relationship

Collaboration
between adviser and client will be ramped up, according to Schmitt, and
technology and interfaces will play a role. For example, Schmitt pointed out,
Raymond James redeployed a tool and redesigned their site to allow clients to
access their plans through an adviser’s website, if the adviser allows. (See “Raymond James
Unveils Financial Planning Software.”)

This
lets advisers and clients collaborate on a financial plan remotely and includes
the client in the dialogue. Anything that strengthens the relationship is
positive, because advisers do not want to become disintermediated, Schmitt
noted. Leveraging technology is a better choice for advisers than pointing
clients toward a website to use independently.